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Build a plan around an individual's specific goals and propose ways of meeting them

CFA® Level III · Private Wealth Pathway · Wealth Planning · L3.PW.3.a

The idea

Start by listing goals, classifying them by importance (essential needs through to aspirational wishes), time horizon and the probability of success the client requires. Each goal is costed in present-value terms, discounting at a return consistent with that required probability: a goal of 1,000,000 in ten years discounted at 4% needs 1,000,000 ÷ 1.04¹⁰ = 675,564 today. Assets are then assigned to goal-based sub-portfolios, with essential goals funded by low-risk assets and aspirational goals by riskier ones; wealth left over is discretionary surplus. If assets fall short, save more, defer or trim goals, or take more risk where capacity allows. The trap is discounting at the portfolio's expected return, which understates the capital needed and leaves essential goals underfunded.

Formulas

Capital needed today for a future goal

PV = goal ÷ (1 + r)ⁿ

goal
the amount needed at the goal date
r
a discount rate matching the probability of success required: lower for essential goals
n
the years to the goal

Discounting an essential goal at the portfolio's expected return understates the capital it needs. 1,000,000 in ten years at 4% needs 675,564 today.

In the app: 2 practice questions on this outcome, a narrated walkthrough with diagrams, spaced review that brings it back before you forget it.

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